Karma and the New Millennium

Written by William A. Peyton

According to a new survey carried out by Alliance & where ID_NUM=9270; Leicester, one in five small business owners view tax as their greatest concern. The Chancellor has announced in his last budget that companies with profits below 10,000 will not have to pay any corporation tax with effect from 1 April 2002. The question to be asked is: does that announcement make incorporation a more attractive option compared to being a sole trader?

The answer is that from a tax point of view, it is advantageous to trade through a limited company as long as income is drawn from company by owners as dividends from their shares and amount of dividends drawn is restricted below 40% band rate (i.e. 31,063 for tax year 2002/03). That way, owners have no further personal tax ("income tax") to pay. Moreover, dividends are not subject to national insurance contributions. This is excellent news of course. But, if dividend income falls within higher rate bracket of income tax (i.e. above 34,515), they will be taxed at 22.5% on excess, which of course will increase tax burden. The company profits are subject to corporation tax rates. Those are lower than income tax rates.

The most catastrophic scenario is when director takes his reward from company as salary. Then his/her salary is taxed at income tax rates (like a sole trader's income). That is because, unlike sole traders, tax system treats companies as separate from their owners because a company is a separate legal entity. The problem is that income taxes are higher than corporation tax rates. On top of that, they will be subject to employee and employer national insurance contributions, which of course increase tax burden and render his position worse than even an unincorporated business ("sole trader"), because NIC Class 1 on payroll are higher than NIC Class 2 paid by self employed.

In contrast, a self employed person ("sole trader") is taxed at income tax rates on profits from his business, which are added to his other sources of income. As it has already been mentioned, income tax rates are overall higher than corporation tax rates. On top of income tax, national insurance contributions class 4 are payable on business profits within a specified band (7% on profits between 4,615and 30,420). National insurance contributions Class 2 are also paid by self-employed people, although those are lower than those payable by company directors on their salaries.

To illustrate above, let's take a simple example. We have a limited company and a sole trader. They both make 60,000 profits each in tax year 2002/03. We assume that company director takes a salary equal to amount of his personal allowances (untaxed income) of 4,615 and balance as dividends. The company will pay corporation tax at 19% equal to 10,523 and nothing else. The sole trader will pay income tax 16,542, National insurance Class 2 104 and National insurance Class 4 1,806. Total 18,452. The bottom line is that person that has incorporated his business into a limited company will make a tax saving of 7,929 compared to a sole trader! Isn't that fantastic?

Somebody might be wondering: why is this entire happening? The official explanation is that, this government, to help economy grow, encourages people to leave as much profits within their businesses to be reinvested, instead of being taken out and spent.

The "unofficial line" is that, as a matter of fact, for years Inland Revenue has tried to reclassify self-employed. The 1% in NIC hike on staff salaries above NIC threshold from next April adds to both employees' and employers' tax burden and may more than offset saving from corporation tax zero rate on first 10,000 of profits.

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WHY DOES GOD PERMIT WICKEDNESS AND SUFFERING? (Part 4) By Arthur Zulu

Our first parents, Adam and Eve are source of wickedness and suffering in this world. The whole story is in Bible book of Genesis Chapters 2 and 3.

God made them perfect and put them in beautiful garden of Eden. They were to live happy, beget offsprings and take care of earth by expanding borders of paradise, with a prospect of eternal life.

But take note. All these were not just offered on a platter of gold. There was a condition -- and this is very important -- they were to eat all fruits of trees in garden, excerpt one -- fruit of tree of knowledge of good and bad. Disobedience would bring death! Simple instruction.

So man was not created like a robot. He was created with right to make choices, freedom to make decisions.

Now this gift of free will -- right to choose -- either good or bad, life or death, is not to be overlooked. So although we were created free, this freedom is not total, but relative. We are subject to Godís laws. And what are those laws?you may ask.

First, we are under physical laws of gravity. Man may decide to climb highest peak of Mt. Everest, ignore this law, and take a giant leap to foot of mountain. Or he may close his eyes to all risks, and go swimming in angry waters of Atlantic Ocean. He has free will.

Also God has moral laws. These involve our life style which includes use of alcohol and illicit drugs, tobacco and sexual promiscuity. Man may choose to have sexual relations with an AIDS infected prostitute with belief that he will never catch dreaded disease. He has free will.

Then there are social laws. Man can choose his type of clothing, art, and music. He also has right to choose his type of friends and marriage mate. He may decide to live all alone in jungle, away from civilization, or to walk naked in streets of New York. That is his free will.

And lastly, there are health laws. A sick man has right to refuse medical treatment. He can also decide to go on hunger strike -- without food and water. After all, it is his free will.

Now, our being subject to Godís laws is similar to our subjection to laws of State -- manís laws. The laws of nations recognize citizenís fundamental human rights.